Wednesday, June 30, 2010

Economies

The thought occurs that fabled beasts, “economies,” appeared in history just the other day. They date from a time when, for the first time in history, the majority of humans earned their living doing something other than tilling the soil, herding animals, fishing, or harvesting forests.

Cycles existed in those times as well, but they depended on climate or disease. Drought brought famine. So did excessive rain or short growing seasons. That the latter also occurred is documented. Ever inclined to be a contrarian, I read with interest a while back a book entitled The Little Ice Age by Brian Fagan (2000, Basic Books). This period extended from 1300 to 1850; during this time the sun had an extraordinarily quiet period; sunspot activity was at a minimum; the cause-effect relation between the two phenomena (no spots up there, cold weather down here) is speculative, but there you are. The Little Ice Age is not my subject; I point to it by way of saying that the old days had their recessions and Great Depressions too, but these came as a consequence of weather—and sometimes they really lasted. They also came because plagues abruptly decimated populations (or, worse, took more like 4 in 10), and shortages of labor caused drastic decline in what were then not yet called economies. That term apparently dates from the 1650s as applied to nations; it was applied to households before that time and comes from the Greek for manager, steward (oikonomos).

In this little reverie I’ll neglect—but point out that I do—that wars are another major source of collective misery.

All this comes to mind because drums have been beating for a while—leading up to the G20 summit in Canada and continuing still—for and against Keynesian solutions to managing the economy. To draw a quick caricature, the Keynesian approach is to replace faltering consumer demand by stimulative government expenditures. Assuming that tax revenues and government spending are more or less in equilibrium, this translates into deficit spending—but that’s Okay because the recovering economy will eventually erase the deficit. Bookish sort that I am, I first encountered this Keynesian notion in Goethe’s Faust (Part II), presented more or less tongue in cheek as notes to be printed based on gold not yet discovered but sure to be buried somewhere in the earth. For Goethe this was a Mephistophelian solution because Mephistopheles introduced the notion. Ah, yes. I know…

Now I pondered this on my walk yesterday. The weather is wonderful; walking is a pleasure now, not something undertaken as penance for my many long-forgotten sins. The situation—namely the very notion that we can manage our economy—arises only because more of it, much more than half, is now, as it were, optional. We must have food, clothing, and fuel. And those portions of the economy don’t really flag. What flags is the optional part. And it flags not because something hard and real out there is denying us resources. It flags because our confidence has failed. The Keynesian approach, therefore, intends to build confidence. If you won’t spend money, the collective will. And so, gradually, the old habit of consumption, consumption of all those things we do not need, will once more return—and the balls thrown in the air will stay up there as the juggler gets busy again.

Now this game of ours—and it is at least two-thirds game and only one third necessity—ought to be so arranged that the necessary part is always hale. That would mean that all people will have adequate income for the necessities, no matter where confidence goes. We have more than enough wealth to set aside in times of roaring confidence to weather these periods with very little pain, except for that pouty feeling that we can’t play with our toys. We should have a real economy and protect it. It would be possible to arrange things that way. It really would. Humanity is capable of the most arcane and fantastic arrangements—and taking them as seriously as if they were the equivalent of breathing. The first step in that direction would be, for instance, to extend unemployment benefits to people—something that, even as the G20 drums were beating, we lacked the votes to achieve.

We’re supposedly so creative, innovative, etc., etc. This transformation requires some kind of new myth, put into forms everyone will understand. A movie, maybe? Let’s call it The Two Economies. We’ll concentrate on one, and let the other float—as we let currencies float. When confidence wanes, and the other one turns into vapor, we can sober up from our orgy of consumption but still remain humbly able to pay our rent, insurance, and our grocery bills. Two economies, stupid. Not one. And a big wall between them. Let the fabled beast have a little offspring. And let's protect it from being eaten by its mother.
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The image is an edited portion of the Chinese Nine Dragon image visible on Wikipedia here.

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